Financial Compliance (Plus Regulations, Challenges and Tips)

By Indeed Editorial Team

Published April 8, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Working in the finance industry can require understanding of a variety of different regulations that keep private information safe. If you're a financial professional, then it's helpful learn about some of the regulations that the government requires organizations to adhere to so that they can stay financially compliant. Reading about these rules and regulations can also assist you in developing your professional knowledge, which may help you advance your career. In this article, we discuss what financial compliance is, explain why it's important, examine three common challenges and provide some tips for improving your finance compliance.

Related: How Much Can a Finance Graduate Make? (Including Tips)

What is financial compliance?

Financial compliance requires companies and financial institutions to follow a variety of different regulations and laws that are put forth by the government and other regulating bodies. Organizations that follow financial compliance regulations range from investment banks to retail banking practices and private lenders. Since criminals often target financial institutions, it's important for these types of organizations to keep careful track of how they store their client's information so that they're not vulnerable to attacks.

Why is financial compliance important?

Financial compliance is important because people typically share private information with their financial institutions that the organization pledges to protect. This helps to prevent theft and ensure the assets that clients store in financial institutions are safe. By making sure that these organizations follow a strict set of rules, the government ensures that sensitive information remains secure. These financial regulations help people feel safe when investing their money at a bank or credit union.

Related: What Are Finance Roles? 12 High-Paying Finance Roles

Key financial compliance regulations

When studying the regulations that govern financial institutions, it can be helpful to read about some of the common rules that these organizations must follow. The government sets forth new regulations as technology develops or when there are changes in the economy. These rules allow the government to reduce the affects of financial crises and promote a strong economy. Here are some key financial compliance regulations that you may want to learn more about:

Know your client

Know your client (KYC) is a common practice that allows investment advisors to identify the clients with which they're working. When handling a client's money, it's important to understand exactly who they are and what their financial goals are. KYC is a policy that ensures trusted financial professionals understand the importance of getting to know their clients and discussing how clients intend to invest and use their assets.

The Payment Card Industry Standard

The Payment Card Industry Standard is a series of regulations set forth by the Federal Trade Commission that governs the distribution of private financial information. These rules require financial institutions to keep customers informed of any data sharing practices in which they engage. The Payment Card Industry Standard also requires these organizations to provide educational materials to their customers that instruct them on how to opt out of these data sharing practices. This is an important regulation that gives consumers control over where organizations send their personal information.

Related: Finance Interview Brainteasers (With Examples and How To Solve)

Cybersecurity policy regulations

The Department of Financial Services requires the companies it regulates to have a policy in place that adheres to the National Institute of Standards and Technology Cybersecurity Framework. This framework is a set of regulations that the NIST developed to regulate how organizations handle digital transactions. These rules require companies to maintain a security infrastructure that prevents against external and internal threats. The rules also require companies to have a system for detecting cyber attacks and the ability to respond to any attempts to infiltrate their systems.

General Data Protection Regulation

The General Data Protection Regulation (GDPR) is an extensive piece of legislation that was passed in Europe to regulate how companies collect and distribute data from their customers. Although this is a European law, many companies choose to apply it to their business practices in every country in which they operate. That's why a financial institution may adhere to the GDPR even when operating outside of Europe.

The rules set forth in this law limit how companies can collect and store data. Under the GDPR, companies can only collect data that is relevant to them and only for specific and legitimate purposes. This law also requires companies to delete their customers' data after they no longer have a use for it. Companies must also be transparent about how they collect and use the data they gather from their customers so that customers are able to track where their private information goes.

Related: The Field of Finance: Definition, Types and 9 Careers To Pursue

3 common financial compliance challenges

While recent laws have improved the transparency of how companies collect and use data, many companies may still have a variety of challenges they intend to overcome. Here are three common challenges for financial compliance:

1. Data privacy

Data privacy is one of the biggest challenges that companies overcome to maintain financial compliance. As consumer data becomes more valuable, it's important for companies to improve their efforts to prevent unauthorized access their clients' private information. To stay up to date with new technology, the government may draft and pass new laws and regulations governing data privacy. This helps to ensure that private financial data remains secure.

2. Financial crimes

Financial crimes is a term that encompasses a variety of different illegal activities. In the finance industry, there are many activities that constitute financial crimes, such as money laundering, insider trading and other types of market abuse. Financial compliance regulations seek to stop these types of crimes from occurring, but identifying areas of abuse can be challenging. To overcome this challenge, financial institutions comply with regulations that seek to limit the potential for financial crimes.

3. Cybersecurity

Most financial institutions aim to identify and address cybersecurity issues. Digital attacks on financial institutions can compromise important data and provide unauthorized access to funds in people's accounts. To prevent and combat this, organizations seek to secure online systems and make digital transactions safe for buyers and sellers.

Related: Cybersecurity vs. Data Science: What's the Difference?

Tips for improving financial compliance

Here are some tips for improving your financial compliance:

  • Stay up to date with new regulations. Learning about every new law can be an effective way to ensure you comply with financial compliance regulations.

  • Perform regular inspections. If you want to maintain proper compliance with financial regulations, performing regular inspections of your data centers is an efficient way to identify and address potential criminal activity.

  • Maintain proper records. Adequate record keeping is one of the most important parts of staying compliant with financial regulations. Many of the regulations in place for the finance industry deal with how institutions store their client's information, so keeping proper records can be an effective way to make sure data is safe.

Explore more articles